Malaysian High Court Orders Refund and RM2 Million Damages for Breach of Exclusive Neurobrain Product Agreement

Introduction

In a significant ruling on contract enforcement, the High Court of Malaysia has held that the defendants breached an exclusive business agreement by denying the plaintiff access to proprietary neurobrain training products and allowing unauthorized third-party use. Judicial Commissioner Helmi Hamzah awarded the plaintiff a full refund of RM500,000 along with RM2 million in liquidated damages. The case involved Star Labs Bioscience Sdn Bhd (first defendant) and P’ng Aik Fong (second defendant), with the plaintiff represented by witness Shiw Shin Yeen. The defendants' failure to purge contempt of court further barred their defense, leading to an unchallenged trial.

Case Background

The dispute centers on a Business Corporation Agreement dated 13 August 2021, under which the plaintiff gained exclusive worldwide rights (except China and Korea) to use the defendants' web-based Neurobrain Training Programme and Assessment Test/Report for 30 years. These products, aimed at improving learning and emotional control, are owned by Star Labs Bioscience Sdn Bhd and developed by P’ng Aik Fong.

The agreement stemmed from an earlier oral deal in April 2021, where the plaintiff paid an initial RM500,000, with the balance of RM1.5 million due in installments starting March 2022. Access required unique login credentials from the defendants. However, by October 2021, the defendants locked accounts, denied access to the plaintiff and trainees (including children with special needs), and permitted unauthorized use by third parties like Braintech—a company owned by P’ng Aik Fong—and showcased the products to Universiti Sains Malaysia without approval.

The plaintiff filed suit on 29 November 2021 seeking refund and damages. An interim injunction was granted in May 2022 and amended in February 2023 to prevent the defendants from selling or allowing access to the products. In November 2024, both defendants were found in contempt for breaching the injunction, ordered to pay a RM100,000 penalty and RM20,000 costs, and barred from being heard until compliance. The trial proceeded on 5 November 2025 without their participation due to un-purged contempt and lack of evidence for an adjournment request.

The main legal questions were: (1) Did the defendants breach the agreement, and if so, did they remedy it? (2) Is the plaintiff entitled to the refund and RM2 million damages?

Arguments Presented

The plaintiff's case, presented through witness Shiw Shin Yeen's oral and written testimony supported by extensive documents, alleged multiple material breaches. They claimed the defendants violated clauses on exclusive access by locking accounts on 11 October 2021, halting training for vulnerable users. Further, the defendants allowed Braintech to generate neuroscience reports for third parties without approval, breaching prohibitions on commercial use or assignment that could jeopardize the plaintiff's interests. The plaintiff also highlighted the defendants' showcase to Universiti Sains Malaysia and failure to remedy breaches within 14 days, triggering automatic termination under Clause 7.3. Police reports and letters demanding compliance were cited as evidence.

The defendants, barred from being heard due to un-purged contempt, did not adduce rebuttal evidence or fully participate. Their counsel sought adjournment citing the second defendant's alleged accident in Jordan, but provided no medical proof. Earlier, in correspondence, they admitted denying access but contested the breach's materiality. However, their contempt—failing to pay the penalty for over 350 days—resulted in the court treating the plaintiff's evidence as unrebutted and true, leaving their contentions unaddressed in trial.

Legal Analysis

Judicial Commissioner Helmi Hamzah analyzed the breaches under the Business Agreement's clauses, finding material violations of exclusivity (Clauses 3.1, 3.3, 3.5, 3.6). Denying access constituted a clear breach, supported by admissions in the defendants' letters, police reports, and account lock evidence. Unauthorized third-party access via Braintech, including generating reports and showcasing to USM, further violated non-commercial use restrictions, with no approval sought from the plaintiff.

The court applied Clause 7.3, noting automatic termination for un-remedied breaches within 14 days, as no remedial action occurred post the plaintiff's October 2021 letter. The contempt order for breaching the injunction reinforced the breaches, as the defendants did not appeal it.

Precedents were invoked to support procedural aspects: Wee Choo Keong v MBF Holdings Bhd & Anor and MK Cooling Services & Anor v Chong Kek Fong [2025] MLRHU 1959 affirmed barring un-purged contemnors from being heard; AHT Syngas Technology NV v Future NRG Sdn Bhd [2025] MLRHU 2270 and [2025] CLJU 2599 upheld this in contract disputes. For damages, Section 75 of the Contracts Act 1950 allowed liquidated damages as a genuine pre-estimate, citing Cubic Electronics Sdn Bhd v Mars Telecommunications Sdn Bhd , Tekun Nasional v Plenitude Drive (M) Sdn Bhd , and Kementerian Pertahanan Malaysia & Anor v SME Ordnance Sdn Bhd [2025] CLJU 2844. Automatic termination was justified via Catajaya Sdn Bhd v Shoppoint Sdn Bhd and Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd . Unrebutted evidence presumption drew from Jaafar Shaari & Siti Jama Hashim v Tan Lip Eng & Anor , Syarikat Kemajuan Timbermine Sdn Bhd v Kerajaan Negeri Kelantan Darul Naim , and Yui Chin Song & Ors v Lee Ming Chai & Ors . The extension of injunction was denied per Associated Tractors Sdn Bhd v Chan Boon Heng & Anor and Keet Gerald Francis Noel John v Mohd Noor Abdullah & Ors , as damages sufficed and the agreement had terminated.

The ruling distinguished material breaches as those jeopardizing exclusive interests, emphasizing the web-based nature's reliance on controlled access.

Key Observations

• On the denial of access: "Instead of granting the Plaintiff 30 years of exclusive access to the Products, the Defendants granted the Plaintiff only limited access to the Products until 10 October 2021, thereby causing a material breach of Clauses 3.1 and 3.3 of the Business Agreement."
• Regarding third-party access: "The Defendants breached Clauses 3.5 and 3.6 of the Business Agreement by allowing Braintech... to access the Products and obtain a Neuroscience Report for a subject named Bob Lim."
• On remedy and termination: "Pursuant to Clause 7.3 of the Business Agreement, the Defendants ought to have remedied the material breaches within 14 days thereafter, but they failed to do so... The Business Agreement was automatically terminated."
• On contempt's impact: "By failing to purge the contempt... the Defendants forfeited their right to be heard, resulting in no rebuttal evidence being adduced. As a result, all the evidence adduced by the Plaintiff was not rebutted and therefore presumed to be true."
• For damages: "Pursuant to Section 75 Contracts Act 1950, the Plaintiff is entitled to... RM2 million as agreed compensation or liquidated damages."

Court's Decision

The court ruled in favor of the plaintiff on both issues, finding proven material breaches and failure to remedy, leading to automatic termination. It ordered the defendants, jointly and severally, to refund RM500,000 and pay RM2 million in compensation or liquidated damages under Clause 7.3 and Section 75 of the Contracts Act 1950. Costs of RM30,000 were awarded to the plaintiff, subject to allocatur. Claims for other reliefs, including injunction extension, were dismissed, as damages provided adequate remedy and the agreement's termination rendered the injunction moot.

This decision underscores the enforceability of exclusive license clauses in technology agreements, particularly for web-based products, and the severe consequences of contempt in civil proceedings. It may deter unauthorized third-party access in similar deals and affirm liquidated damages as a swift remedy, potentially influencing future Malaysian contract disputes involving intellectual property and exclusivity.